The Thaksin Effect

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These are fast times for Wacharee Nispaprapassorn. The 28-year-old information technology consultant sits in a gleaming Starbucks on Bangkok's ritziest road, Langsuan, sipping an iced latte and chatting excitedly about her new life. Last month, she says, she bought a new car. Now she wants a new apartment in a luxury building just a few doors from here. The building has been on sale for just two weeks but three-quarters of the flats have already been sold. "If I don't buy now I'll never be able to afford it," she says. "The prices are getting crazy."

Eighteen months ago, says Wacharee, she could barely afford the extravagance of a latte, never mind a posh apartment. Back then, she still considered herself a victim of the 1997 Asian economic crisis. The crash didn't mean the loss of her job, but it did mean a drop in pay and no more Christmas bonusesmoney she had always relied upon to pay off her high-interest credit card bills. "There was no way I could afford to pay off my credit cards without the bonus," she says. "I didn't think I'd ever get my life moving again."

But a raft of loans (with interest rates as low as 3.5%) offered by Thailand's state-owned banks have helped her turn her fortunes around. She took out a personal loan, with which she consolidated her credit card debt; she used another to buy her car; and now she's applied for a mortgage to pay for the apartment. Soon she will open her own IT consultancy. Never mind that interest rates might rise, that the property market might fall, or that Wacharee earns a modest $1,500 a month. To her, and millions of other Thais, the good times are back. And for that, they say, there is one person to thank: the country's Prime Minister Thaksin Shinawatra. "Thais didn't used to have faith in him, but he has finally proved to us all that he knows what he's doing," she says.

Certainly, Thaksin's scorecard has been impressive. This week's APEC Leaders' Summit in Bangkok has provided the perfect stage for Thaksin to flaunt his success and build his growing reputation as the most dominant leader in the region. Since taking office in February 2001, the billionaire telecom tycoon turned politician has presided over the fastest-growing economy in Southeast Asia. Last year Thailand's GDP rose 5.2%, and it's on track to expand 5.8-6.2% this year thanks to sizable increases in exports and domestic spending. The Thai stock market, meanwhile, has soared 67% so far this year, and property demand in the nation's cities has reached levels not seen since before the 1997 crisis.

The catalysts for these gains are a passel of measures enacted by the government to revive rural economies and stimulate domestic demand. This approach has been widely dubbed "Thaksinomics"and suddenly, everyone is a convert. Philippine President Gloria Macapagal Arroyo is a disciple and so is Indonesia's Megawati Sukarnoputri: both have adopted Thaksin-like programs for their countries. Even China, the engine of growth in the region, sent officials in July to investigate Thaksinomics' successes. "When Thaksin first talked about his [programs for rural recovery], everybody made fun of him," says Arroyo. "But one year later, other countries were also replicating it, including the Philippines."

At home, Thaksin's programs have endeared him to the impoverished and, more recently, to a skeptical middle class once convinced that the PM's antidote for Thailand's domestic illsincluding low interest rates, government-funded health plans, and cheap loans for the poorwas little more than populism masquerading as policy. "I never voted for Thaksin in the elections," says Bangkok-based advertising executive Kitti Chambundabongse. "I thought he was just another rich kid with a hunger for power. But he has proved to be so much more than that. He's given us the confidence we lacked."

Thaksin's critics say some of that confidence might be misplaced. They fear the government has hooked consumers on easy credit and increased debt in the countryside while placing considerable strain on government coffers. "It's not sustainable in the long run," says Somchai Jitsuchon, research director at the Thailand Development Research Institute (TDRI), an independent economic think tank. "The concern is that when the government eventually stops pumping in money, whenever that is, the economy will collapse." Meanwhile, the country's economic success has diverted attention from Thaksin's more controversial policies, including this year's deadly crackdown on drug dealers. "This country is going backward, not forward," says a Thai human-rights worker in Bangkok. "The government is giving people money with one hand while taking their liberties away with the other."

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Most Thais don't seem to mind, giving their leader an approval rating of about 70%. And the sense that the tide has turned is palpable not just in the cities but in the countryside as well, where farmers were particularly hard hit by the '97 crisis. Indeed, Thaksin's greatest success so far may be reviving the debt-laden rural economies. In the farming town of Bahn Rong Kong Khao, near the city of Chiang Mai in the country's north, the government's $2.3 billion Village Fund program, a microlending scheme, is a mini miracle, say residents. Narong Fongkraew, 50, who grows rice and chilies on his small farm, credits the Village Fund with saving not just his farm but the whole community. "After 1997, banks stopped lending to us and some people were forced to borrow from moneylenders who charged high rates of interest," he says. Recently, Narong borrowed $475 from the Village Fund at a very low rate and used it to hire laborers to help him work his fields. Increased labor led to a greater crop yield, and this year, for the first time in six years, he earned enough to begin paying back his creditors. "I came very close to losing my land," he says. "But now I think I will be free of debt within five years." And Narong is not alone: nationwide, poverty levels have dropped almost 4% since Thaksin's programs began in early 2001. Farm incomes rose 11% last year and more than 20% in the first half of this year.

For the government, villages like Bahn Rong Kong Khao are proof that its policies of driving growth from the grass roots are working. "By giving [the poor] access to capital, we have given them the chance to show that they are capable of imagination and expansion," says Chakramon Phasukvanich, secretary-general of the National Economic and Social Development Board, a governmental planning agency. Finance Minister Suchart Jaovisidha says concerns that loans to farmers would load the sector with even more debt have proved unwarranted: "It's been very successful. About 97% of loans have been paid back. It's much better than giving loans to businesses where the risk is much higher." But critics believe the government-loan statistics don't tell the whole story. In many cases, claims TDRI economist Somchai, villagers have used their loans to buy consumer goods. "Much of this money has been used for consumption," he says, "not for development." Others charge that many villagers have managed to repay their debt to the Village Fund only by borrowing from ever-present moneylenders who charge high interest rates.

Back in the capital city, other pillars of the Thaksinomics miracle may be weakening as well. Aggressive lending policies by Thailand's state-owned banks, together with tax breaks to developers, have fueled a Bangkok real estate boom among Thai buyers. But some foreign investors who rushed into Thailand to snap up foreclosed properties after the 1997 crash are now selling, convinced that the market has topped. "Three years ago we had properties on our books that no one would touch," says a Bangkok-based real estate investor. "Now we are getting offers you wouldn't believe. It's a speculators' market."

If Thaksin's team is worried about the heat in the property market, they're not admitting to it. Buoyed by recent upgrades from international credit-ratings agencies, the government has no plans to slow down the lending by state-owned financial institutions, which now account for almost half the loans in the system, up from about 15% before the crisis. "Commercial banks were hit so hard by the storm of '97 that they have become too cautious about lending money," says finance chief Suchart. That, he explains, is why the government has pushed state-owned banks to lend liberally.

But observers are concerned that the state-owned banks are in no shape to be leading the charge. Many of them had their dud loans from the crash either wiped out by the government or transferred to asset-management companies. "Because the government cleared the [state-owned] banks' bad debts... they think they can now afford to lend madly," says Somchai. He fears that the banks may be taking on increasing credit risks. "If the economy has a hiccup," he says, "the state-owned banks are going to be in real trouble."

Those kinds of concerns don't faze Wacharee, the IT consultant. Like many in Thailand, she views the favorable conditions created by the Thaksin government as a second chance at prosperity, one she doesn't intend to squander. "I'm starting a business that I know will work," she says. "I'll be contributing to the Thai economy. Imagine, 18 months ago I didn't even have a future. Now I'm thinking of getting rich."